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Dollar bid ahead of US Non-Farm Payrolls

Erik April 3rd, 2020

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SUMMARY

 

  • Traders anxious ahead of US NFP print that won’t fully capture extent of March job losses.
  • Consensus expecting -100k headline, +3.8% for the unemployment rate, +0.2% MoM wage growth.
  • Final March Services PMIs out of Europe miss expectations.  Australian Retail Sales mildly beat for Feb.
  • May WTI crude +6% this morning as traders price in coordinated action from key global energy producers.
  • EURUSD &  USDJPY cross currency basis swaps continues to tighten, but traders ignore glut of new dollars.
  • US ISM Non-Manufacturing PMI for March out at 10amET, 44.0 expected vs 57.3 in February.
  • Over 2blnUSD in USDJPY options expire at the 108.00 strike at 10amET NY cut.


ANALYSIS

USDCAD

The dollar remains on the front foot this morning, but we think this has more to do with trader anxiety ahead of the much anticipated US Non-Farm payrolls report at 8:30amET.  Some analysts are blaming today’s USD strength on the weaker than expected final March Services PMIs out of Europe, but we’d argue that this slump in service sector business sentiment shouldn’t come as a surprise to anybody.  What could come as a shock however is the number of jobs lost in the US over the month of March, and we know already that today’s report will be understated because the BLS’ labor market survey periods end on the 12th of every month.  Traders are nonetheless expecting 100k job losses, a jump in the unemployment rate to 3.8% (versus 3.5% in February) and +0.2% MoM growth in wages (versus +0.3% last month).

 

Dollar/CAD continues to toy with both sides of the pivotal 1.4180-1.4200 zone (formally 1.4170-90s because of the upward sloping nature of the trend-lines that created it).  The May WTI crude oil futures are trading 6% higher this morning as the markets continue to price in the prospect of coordinated action from all the key global energy producers (even non-OPEC).  The now widely followed 3-month EURUSD and USDJPY cross currency basis swaps continue to show an abundance of US dollar balance sheet capacity, as both trade to +60bp and +25bp respectively.


 USDCAD DAILY

USDCAD DAILY

USDCAD HOURLY

USDCAD HOURLY

MAY CRUDE OIL DAILY

MAY CRUDE OIL DAILY


EURUSD

Euro/dollar continues its fall lower this morning as traders angst about the upcoming US Non-Farm Payrolls report.  So much for the choppy range trade we were expecting earlier this week.  The market has been one directional ever since the 1.1140s buyer failure we saw last Sunday night.  Monday and Tuesday’s EURUSD sales were blamed on month end/quarter end flows; it’s all been about new coronavirus-induced economic fears since then, and traders are totally ignoring the glut of dollars that have been created in the swap/repo markets.  We think a NY close below the 1.0770s would be very bearish for EURUSD heading into next week.  Over 1.3blnEUR in options expire between the 1.1750 and 1.1775 strikes at 10amET this morning.


EURUSD DAILY

EURUSD DAILY

EURUSD HOURLY

EURUSD HOURLY

JUNE GOLD DAILY

JUNE GOLD DAILY


GBPUSD

Sterling is retesting the lower bounds of its recent 1.2290s-1.2450s price range this morning.  Broad USD buying ahead of the US NFPs appear to be the culprit.  The EURGBP cross rate looks like it has finally found some chart support in the 0.8740s today, which leads us to believe that sterling could be vulnerable to some negative UK-specific headlines here.  We think a NY close below the 1.2290s would be near-term bearish for GBPUSD.


GBPUSD DAILY

GBPUSD DAILY


GBPUSD HOURLY

GBPUSD HOURLY

EURGBP DAILY

EURGBP DAILY

AUDUSD

The Aussie continues its retreat this morning as mild risk-off flows dominate ahead of the NFP report.  Yesterday’s chart support level in the 0.6020s has now fallen, which now technically exposes a move down to the 0.5950-60s.  Australia reported a slightly better than expected February Retail Sales report last night (+0.5% MoM vs +0.4%), but as with most “hard” economic data reported lately…nobody cares because these data points are now severely outdated in light the fast moving economic damage that has been caused by coronavirus-induced lockdowns.


AUDUSD DAILY


AUDUSD DAILY

AUDUSD HOURLY

AUDUSD HOURLY

USDCNH DAILY

USDCNH DAILY


USDJPY

It’s hard to tell what exactly is driving dollar/yen this morning pre-Non Farm Payrolls.  We definitely thought Trump’s oil market tweets helped restore the broader risk tone yesterday, which in turn reduced safe-haven demand for JPY, but one could make the argument we’re seeing some safe-haven flows return this morning with broad USD demand.  It’s hard to argue though with the market’s decent NY close above the 107.80 level yesterday (which improved USDJPY’s chart structure).  We think hedging flows around this morning’s massive USDJPY option expiry at the 108.00 strike could very well be in play as well.  We believe a NY close above the 108.60s would be even more constructive for USDJPY heading into next week.


USDJPY DAILY

USDJPY DAILY

USDJPY HOURLY

USDJPY HOURLY

JUNE S&P 500 DAILY

JUNE S&P 500 DAILY

Charts: Reuters Eikon


About the Author

Erik Bregar

Erik Bregar - Director, Head of FX Strategy

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Erik works with corporations and institutions to help them better navigate the currency markets. His desk provides fast, transparent, and low cost trade execution; up to the minute fundamental and technical market analysis; custom strategy development; and post-trade services -- all in an effort to add value to your firm’s bottom line. Erik has been trading currencies professionally and independently for more than 12 years. Prior to leading the trading desk at EBC, Erik was in charge of managing the foreign exchange risk for one of Canada’s largest independent broker-dealers.

Interested in creating a custom foreign exchange trading plan? Contact us or call CXI's trading desk directly at 1-833-572-8933.

About Currency Exchange International
Currency Exchange International, CXI, is the leading provider of comprehensive foreign exchange services, risk management solutions and integrated international payments processing technology in North America. CXI’s relationship-driven approach ensures clients receive tailored solutions and world-class customer service. Through innovative and trusted FX software platforms, CXI delivers versatile foreign exchange services to our clients, so that they can efficiently manage and streamline their foreign currency and global payment needs. CXI is a trusted partner among financial institutions, corporations and retail markets around the world. To learn more, visit: www.ceifx.com

 

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